Ottawa’s Crossroads: convincing the market it's half-full

Ottawa's most recent report on CRE will either scare or thrill — depending whether you are a business landlord in a defensive posture, or a proponent of downtown revitalization waiting eagerly for intensification and new downtown opportunities.
“Your perspective in the market is really determined by what you are looking at personally,” said Kelvin Holmes, managing director with Colliers International Colliers International in Ottawa.
“If you tend to dwell on the negative stuff, it is a pretty dismal picture. But if you look at the positive stuff, it is a pretty exciting time with all kinds of opportunities.”
As office vacancy numbers rose in every section of Ottawa, Holmes said there are clear signs Ottawa is in the middle of a conversion.
The Colliers International Q1 Office Report for Ottawa shows the vacancy rate increased overall by 10 basis points to 8.6 per cent, while the average rental rate remaining flat at $18.11 per square foot.

Ottawa office vacancy predictions from Colliers Q1 Office Market Report
Finding opportunity in downsizing
In some ways, it's a cup half-full or half-empty scenario, admits Holmes.
“The departure of an anchor tenant such as the government from Class C buildings is definitely worrisome,” said Holmes. “However, there is the opportunity with the right capital investment to even transform office towers into mixed-use condominiums.”
Holmes said in the case of Public Works moving out of 123 Slater St. 123 Slater St.
the landlord, Metcalfe Realty, has already secured a private sector tenant for the top three floors and at least one other floor is to be occupied by another private tenant.
Holmes said this could be seen as negative with 120,000 square feet of empty space, or as an opportunity to get tenants who are not able to afford to rent A- or B-class buildings.
“They have lost a government tenant, but they are filling it up with private sector tenants and they will never have an empty building again,” he said.
Overall, the current changes throughout the city mean tenants will shop around or “right-size” their space, he said.
Younger people moving downtown
Holmes also said the commercial and multi-residential sectors need to grow together, especially where so many new condo projects and towers are being built.
“These condos tend to attract younger people that want to live and work in the downtown. That's also something where the LRT will make an impact in the coming years.”
He pointed out that it is unlikely there would be an influx of downtown retail to drive the growth in population. It is more likely the retail will follow the increase in intensification downtown.
“Retail property continues to benefit from U.S. retailer migration into Canada with retailers vying for prime mall space,” he said, but added those stores are mostly going into areas either surrounding the downtown, or farther out on the edges in Orleans or Kanata.
Holmes said there has also been a perception that there is no central theatre district or areas that will attract people in the evenings.
He said building a casino and hotel in Labreton Flats might be an area where there is opportunity for growth, creating a “little Manhattan.”

123 Slater Street vacated by the Federal Government and owned by Metcalfe Realty
Creating a vibrant hub downtown
“This repatriation trend has already begun and bears the potential to change the fabric of the city from a sleepy bureaucratic downtown into a vibrant and lively hub where Ottawa lives, works and plays.”
He said it is unfortunate that there has been a negative perception about downtown.
“It has had a reputation of being a place where the sidewalks roll up at 4 o'clock,” said Holmes.
There are of course signs of life in the Byward Market and along Elgin and Bank Streets.
Part of the equation will be decisions by politicians on issues like the casino and light rail that will affect the future of all areas of the city, said Holmes.
Ottawa Mayor Jim Watson did not immediately return a request for comment.
Other report highlights:
The Ottawa market as a whole saw vacancies increase by 10 basis points this past quarter.
The vacancy rate in the Downtown Core increased 20 basis points to arrive at an overall vacancy rate of 6.9 per cent for the quarter.
Overall vacancy in the suburban markets remained at 9.8 per cent this past quarter.
Class A and B buildings still retain a solid prospect. The ongoing exodus of the Federal Government from the Core Business District to the suburbs has put pressure on the vacancy rate, forcing it up by 20 basis points to 6.9 per cent the past quarter. This trend drives Class C building owners in the downtown core to a crossroad.
Commercial market fundamentals across the country are anticipated to remain solid throughout 2013.

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